Retail Observer

RETAILOBSERVER.COM FEBRUARY 2019 68 H istorians have pegged the number of recessions in the US since 1776 at around 47, or a recession on average about every five years. The current business expansion in the wake of the 2008 recession has lasted just beyond 10 years. A poll of business economists at U.S. corporations, taken by the National Association for Business Economics, suggests we're overdue for a change of fortunes. The news is disquieting–two-thirds of the economists polled said they expect a recession within the next two years. Ten percent see it starting in 2019, 56% are convinced it will occur in early 2020, and 33% said it won't happen until 2021. The economists polled included 51 forecasters whose predictions have been surprisingly accurate over the last 25 years. The three biggest issues cited were trade policies and tariffs, the rapid rise in interest rates, and the current substantial decline in the stock market. Also noted were the levels of uncertainty created by our disjointed and sometimes incoherent communications with China regarding tariffs. Certain indicators have occurred in advance of prior recessions such as we witnessed in 2008. Here are four historical warning signs of an economic slowdown. 1. In 2005, 2006 and 2007 we saw automobile sales decline each year before completely collapsing in 2008. The past two years have also seen a decline in auto sales, a signal that was widely overlooked in the run-up to the last recession. A continuing decline in 2019 will be a concern. 2. American consumers reached record levels of debt in 2008, owing more than $13 trillion in household debt. Recessions often follow a substantial increase in the use of credit as consumers run out of money. Lending Tree, the largest online loan company, predicted that consumer debt numbers may show an excess of $14 trillion dollars by the end of 2018 (numbers to come). This is a harbinger of recession, as each downturn has been preceded by the over-use of credit in America. 3. Recessions are usually ushered in by a global retraction. This year, as the result of a trade war and tariffs, we have seen a pullback by China and Japan, even though our trade deficits are increasing and the Eurozone slowed in late November to the weakest level in more than four years. 4. The yield curve on the two-year and five-year bonds inverted on December 11, 2018. Even more hair-raising, the difference between the two-year bond and the ten-year bond as of December 18, 2018 is now only 11 basis points. This is a stark warning about the future of the economy, and not just for economists, since it affects us all. A hedge fund manager at Goldman called an inverted yield curve a "harbinger of doom." This indicator has accurately forecast the past four recessions, all of which occurred six months to two years after an inversion. To conclude this somewhat somber message, the economy is still strong, corporate profits are up, Americans are employed and wages are rising. We'll need to wait to see what the numbers reveal on January 30, but I think GDP will come in at 2.9% for the end of 2018, and consumers will remain upbeat and continue to spend money in the economy. If there is a recession, it will not be anywhere near what we lived through in 2008 and 2009. While predicting bad times is never a welcome task, it's important to be aware when the leading economic indicators seem to be pointing to difficult days ahead. Watch this column next quarter for an update on our growth prospects. RECESSION LOOMING? What to expect in 2019 and beyond Joe Higgins Economic Viewpoint RO Joe Higgins — with more than 44 years in the appliance industry — speaks at conventions, seminars and sales meetings across America. His work includes presentations on the United States economy, leadership, creating a high performance culture, healthy teams, and customer service. Visit www.q4qwithjoe.com.

• Cover